Collinson FX: December 18, 2018 - Positive moves from China

Collinson FX: December 18, 2018 - Positive moves from China

Markets remained negative, leading into Xmas, following a big sell-off to close the last week. Chinese economic data confirmed the impact of the US/China trade war with a slow down in economic indicators. The Chinese have agreed to increase US agricultural imports and are looking at US car tariff reductions. These positive moves are not swaying markets, as the fallout is real, reflected in data. The Dollar settled, with the EUR regaining 1.1350, while the GBP broke back to 1.2600. Europe remains in a state of political chaos, with the ‘yellow vests’ and Brexit.

The commodity currencies had a quiet start to the week, following a challenging week, as trade exposed markets struggle. The US/China relationship remains key to these commodity currencies. A trade deal will have a positive impact, as major suppliers to China benefit, while any agreement will adversely impact exports to China as the US fills much of the supply gap. The Australian and NZ economies have performed remarkably well, under testing circumstances, but the trade deal remain fundamental.

Central Bank speculation remains the key to markets in the ‘silly season’.

Sam Bullock starts the 2018 Coastal Classic and was the first to finish in Bay of Islands by a big margin - photo © Richard Gladwell

Collinson FX: December 17, 2018 - NZD back to .6800

Sentiment took a dive at the close of trading of the trade week. The trade impasse is translating into actual economic data coming out of China. Chinese Industrial Production and Retail Sales were softer in China, providing an incentive for Chinese political leaders to facilitate a trade compromise. The Chinese are moving towards significantly increasing imports of US Soya Beans and Corn, while reducing tariffs on US cars. Positive moves have given markets reason for hope but economic data is starting to reflect the weaker economic growth narrative.

European markets remain locked in Brexit chaos, while ‘Yellow Vest’ protests spread across France and Europe. The Geo-Politcal situation is deteriorating across Europe and starting to impact the economic environment. The EUR slipped back below 1.1300, while the GBP slumped to 1.2570. The significance of these political demonstrations cannot be underestimated.

Chinese demand and the trade wars negatively impact the trade exposed commodity currencies. The NZD dropped back to 0.6800, while the AUD fell to 0.7175, reflecting global trade and growth fears. The coming week will be highlighted by Central Banks with rate decisions from the Fed, Bank of England and the Bank of Japan. Growth data will be in the spotlight with GDP numbers from the USA, NZ and the U.K.. Local NZ Business Confidence has been a market mover this year, so this number will be keenly watched, while Australian employment data will be key to local markets.

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